fournal of Economic Behavio; and CQmizadon 4 f 1983) 353-379.

North-Hniland
BEHAVI ORAL NORMS lt!Y THE I SLAMI C DOCTRI NE 01:
EC+3NOMKS
A Critique
At the heart of the cuntanporary Islamic doctrine of economics lies a set of behavioral norms
derived from the fit% Islamic society in seventh century Arabia. This paper demonstrates thaat
thy zww C~QSO! 5E C;X~SS& t o SET-Z I S & S~C& SXI 0: a dtive for mi&rn ~CCKHXD~C
devclspment. For oni: thiag, the proposed norms are unlikely to enjoy widespread adherence in
large SUCi&S Wh i i i i c i i t l bl t t 9 8c hi eVe 8 COmI nOn pr c ept i On of reaIity, elicit generalized
altruism aJId OYQW~J e the free rijer problem. Yeamdly, many Islamc norms are ambiguous,
and some interfere with institutions designed to improve the workings of markets.
I. I atroduction
A conviction gaining currency among costernporary so:.;al thinkers in the
Muslim world if thai healthy econorric deve opment entails subordination of
all production, e rchange, and consumption &&ions to the behavioral norms
of Islam. The economic woes of Muslim cc,untries, many scholars conrend.
are due in large measure to departures from Islamic codes uf conduct: if only
the individual Muslim had n.ot abandoned the norms prescribed by his
religion and succumbed to his greed for material g&n, Muslim society would
be kee of the tmckwardness, poverty and inequality which characterize it
today. T*e doctrine of economics put forth by these scholar:, which is at
once a refloetion of public opinion and a poweM force shaping it. has
considerable influence on economic behavior throlnghout the Ml sli n world.
An analysis of the assumptions and arguments that underlie tk Islamic
doctrine can thersfore enhance our understanding of tk cconomii ~obicms
faking Muslim ccuntries,
01fT-2681/83/%3.W @ 1983, Eiscvier Science Publishers B.V. (P1!0rth-ifofl~nd)
r& in the &&are on &am&z economics. Meed, many scholars, including
M_N. Siddiqi (19gI, p f)b, a widelyquoted pmpmmt of the i-kmic systm,
cmskbr mst of the difkrences between Islamic economics and Western
ec~nlinE (I ~eoclasska~ and Ma&x) to be rooted in behavioral norms. NIy
concern with. the co~tcrn~r~ literattire? as opposed to the body of thought
that -emzge& 31: sevnthr
infiuence on current econo
While in formd terms the modex~l d&$r!~e bears strong resemblar~ce to the
origkal IIslamic: source!+ its act& ~&@a.&+ as convincingly argue4 by Asaf
AA. Fyzee (1%3), Fazhx Qhman f1982) a.r@ many others, is si@fkaatly
different.
Norms arc stand;&$s of e~duct M&h tidividuais follow in their
activities. Like. forma1 krs and rirllq tl~~y serve to @de and restrict the
individual3 choice of actions. Where thlzy differ is in the me&&m of
eriforcement. Laws and ruks are enforced. by an ~utsk& au&or& - the
former by the state and t&e latter by an organization or group of individuals
-
tihile nvnns are for+ by the irt.ditidualk ,own ccx~xienc~ i In -t,he
Islam@ do&r& the role of g&ding t&e i&&k.ls *non& a&ions is given
to f)om as; an inferior akenratke to XlonnS. laws an& r&s are imposed
o&y as a last resort w&n norms fti to elicit Ihe desired behavior,
Why, one might wonder? is there any need to guide and rest&t the
i mdividuals economic behavio,,? The Mamic answer to this questk+n biages
on the assrrmptiou that rn;aus inn&c seifkhne.ss motivates him to take
actions con&ting wit&k the ~cneral gocd of soci4zt.v. This assure ption impties,
according to thz I&mic st;hoIaB, &at there can be no peace qrr harmon:! In
ti community of seEseeking individuals, and therefore, that each individual is
doomed to kecurity and &nha&ness unkss everybodys selfishness is
srmebw temgmfx!. The role of re&raining mati*s seh&h impuks belongs in
the kkmk system to ~x~rn~s based on&e Koran and the Sunnah, the latter
co- of rk+&kct~~r~s -6f wh&t Pk$r&t Muhatiad dkl and said during
his &ink~ ~$he~-~loktke sy&em bf fsiam,wtit& $yed I?.& Naqvj (19gfb,
pa EQ, *&joiris the b&t c&i&titi~n df the proo&tctio.rx structure and a just
bak~mce between rival c&rims Ori the consumpti6n, production rend
distriiution activitie$?
Cornpak this 6ew -v&h. the pkopositioa, whkh has dominated Western
economic thought at leaut since Adam Smith, that individuals who pursue
thek own gairr are feli by an invisible hand to promote the broader interest
of society. !n cmtrast to the Idamic dcstrine, the doctrine of the invisible
hand ascribes no explicit role to behavioral ntorn~s.~
2%~ a~gum+~~t t&t the IsIan& norms are well-suited to improve the
fun~tior~ng af $n CXX.MMB~~C S~SSXD is b&&red by e4dence from the earliest
days T.$ IS&MB, About MM ago, 8tW Waqar Ahmed Husaini ( 1980,
,SVS&~ a new Irum~ spirit [t&f changed the ideas.
POE&Z cmdition% and other cuIturaI phenomena in the
n&n and BmrJltine Empires, North Africa,
ia, and other regions. And on the same note
~ukmmad AbduCRauf (1979, p_ IM) writes, A: (Pie fskmic state expanded
and iworp0rate.d mcwt c;f the territories then known, Muslim leadership waf
CMfkontaC: with irmlmerablt problems, which they resolved with an amazing
degree c&#kkn~y.
con US has the golden age of Islam spanning the Lrophets lifetime and
the tsaufi bet-n AD. 632 and 661 of fhe fuur rig;?tly-guided c:~lipk4
Thereafter, it is bel&~~I, the fabric of Mus!im society began to disintegrate a~
the spirit of sakfke and generosity inspired by Islamic values and
injunctions was yrogretiwiy conquered by the poweifu:; corruptive forms of
possessiveness an4 love for pea&h [Abdul-Rauf ( i9W, p. 141)]. Con-
tempsrary writeis are united in the belief that the ideal crder could
agaiu be achieved today by arousing the potential of true human nature to
establish Islamic social just& [Husaini (FMX p. 13\]. The norms that
worked woi;&ers in seventh censury Arabia., they argue, could do the same in
any of todzys societies.
The fti that norms piay a role in the Islamic doctrine is not at all
surprising in and of itself, since all economic systems, including the advanced
economies of the We& make use of behavioral norms to resolve free rtdel
and ceordination problems. Free rider problems ari.se when each of thr
individuals wkh P common interest ia performance of a collective kask
chooms to m&e others bear the: cost; the task then fails, even though the
cotltxtive benefit from its completion exceeds rhc collective cost. Such
problerna are ovc~corne in actual economic systems throug.h Isws, rules antj
norms that cause individuals to farsake personal gains for the Iarger benef?
of s&ty. Pollution controls and the military draft are examples* of the laws
individuals coilwtiveiy devise: to eliminate the free rider problem b:.
~~~st~~inj~# their own behavir!r; the ba-laws of crgakations are among the
w&s imps.& for the wrnc pqwse. A~F for caordinalion problems, they ark
356 T. Kuran, Behavioral norms in Islamic economics
in situations where there are several mutually beneficial states of the world
toward which individuals can aim their actions, but where agreement on
which particular state to target is unlikely to be reached in the absence of
some form of guidance. Regulations that force people to drive on the right
and rules that require members of an organization to abide by specific work
hours (say, nine to five) are solutions to coordination problems.
5
Norms tend to be used to resolve free rider and coordination problems in
some types of situations where surveillance and enforcement costs are so high
that laws or rules are infeasible. The task of keeping the countryside clean is,
for instance, accomplished in many societies through norms, because anti-
litter laws are prohibitively expensive to enforce.
6
Similarly, societies use
norms to enforce codes of etiquette. Among the other collective tasks where
norms play an important role are blood donation campaigns, fire control
activities, and voting in national elections. Societies inculcate a diverse array
of norms into their members through the family, religion, schools, peer
groups, traditional literature, the media, state propaganda and various forms
of folk wisdom.
Thus, the Islamic doctrine captures an element of reality when it ascribes
an important role to behavioral norms in the economic system it envisages.
This is commendable, particularly since mainstream neoclassical economic
theory, which constitutes the backbone of policy discussions in much of the
world, pays almost no attention to norms. Indeed, there is little in the
neoclassical literature to indicate that behavioral norms - in the form of
moral codes, religious injunctions and ideologies - are used to reduce the
costs of enforcing constraints on economic behavior in actual economies.
But the principal strength of the Islamic doctrine is also its most glaring
weakness. For the normative system of Islam is expected to provide perfectly
well-defined and clear constraints on individual economic decisions and to be
applicable with equal force to all societies in all stages of development. These
factors, as we shall see, open the Islamic doctrine to criticism on at least two
grounds.
The first basis is that the doctrine takes no account of the finding of
modern social science that as society expands norms become less effective as
a means of achieving social cooperation and coordination. The loss in
effectiveness, which results from an increasing frequency of violations, causes
society to discard some norms and supplement or replace others with written
laws and rules. For instance, norms requiring individuals to engage in
charitable activities are supplemented as society grows by mandatory taxes
designed to guarantee the transfer of some resources to the poor.
'Using a game-theoretic framework, Ullmann-Margalit (1977, chs. 2 and 3) analyzes numerous
types of free rider and coordination problems and provides many instructive illustrations.
6A discussion of the role of norms in overcoming the free rider problem is provided by North
(1981, ch. S). See also Arrow (1974, esp. ch. 1).
:.- 1IzlWi dVtXi if it Wer~,,trUe tbt the Ishmk norms were f ul l y effective iyj the
Of the seventh century, this in no way guarantees their
modern e~onon~y. But in-.oiny case the. GIaim that the norms
e !ia. thq.gc@zxCa is:. I$kd by the J&&xi& rmrd, which
:~~~~~ j gfT&k rs)@@iicsv.w~ :iacrewrrapi&y ,w the. $&&c
~~~~~~~~ &.I%%.~& i&H. !!@ne;:d tfilt?;. &hoe cm .this point will be, presented
in: th& c-~~rae-&&; s@ment, even- though this paper & not intend& to be
hi@o&&, ; . ..:. ,_ ,_
The ~~~~~~~~~ for,criticism is j that the Islamic nor~cts are ambiguous in
.I?Ia$)y.,jC$:;thz:: 4
c9f.-?,3*~&~~~~to ~,.whi& dwy are. expected to apply, In these
~~t~~~; uheu;. eonstit?ite a rather pour substitute for the detailed laws and
haye *W&M: in :the course of economic develoggment in societies
!3e,toda~, .(, II .~.~-:
te p-x&ding titIm ani outline and critical evafuation of Islams
normative system, as interpreted by contexnporary Iskmk economists, it is
important to note that the Isllamic doctrine ha.s a huge number of
proponents. A bibliography compiled in 1978 lists 700 recent sources on
Islamic economics tind the number is increasing rapidly. Not surprx~hngly,
the- .propnen& qf the dsPCtrine have varyilgg views about what the Islamic
noranq;* -;irre - and about whkh ncprms, if any, need to be supplemented by
f0nna.l -~egislation.p
At .one.end of the, spectrum are the fmdamentalists who seek liter&y to
~turn to the perceived simp%&y of the Arabian economy during Islams
e=ly ye,axs, The.fundamenta&ts.eEorts are directed solely at discovering the
model. of that ideal. ecomxuy. FuGy convinced that nothing needs to be
added,to the m&el, they are strongly resistant to the scientific spirit and to
a:ross-cultural exchange of ideas and institutions. At the other end are the
rgformgzrs, who see& to create a ~t$w economic system which, while being
.
3 am w&;hc &ap kmmmpoifary to denote the pm-1964 era Tlms, I shall not cundder
su13 @&-sindiiienti~ kd early- &d tid+&nt&th cenhtry writers as Sayyid Jamal ad-Din
AfEh&ui, I&b&n&l Abduh, Mulknmad Rasliid Rida, Ali Abd ar-R&q, E&M ai-Bannrp and
Ml Jmmmad~Ghazml&qacl~ (f whom baa~pMxmdly influenced cxmt~~porary k+rki~ ithinking.
Tc, my- Y@owlpjl!pq @cc+ ,+mats no satisfqpry m&al study of xpzc: mmMc views of these
tli&m..l?i-q an a&&~ ofTi%% politic&l vxews, see Enayat (1982) and the referem%. herein.
$%kistairi &item am lm&ily represrmt& iu this ~b~~~a~hy by Siddiqi (19el), whkh is
~_,fiaad to wmks its &abic;, En&& and Urdu. They also figure prominently 3~ the fmsmt
paw, ,w@ich mij,s ppimarjly on ~~li~~-~~n~a~~ sources. This ~v~~~!~~~~~~i~~ is unlike:ly,
however, to iotrcxiucr: a serious bias into my i~t~~~retati~~ of the Hslamic doctrine, because the
l~~~~.s~a~~ ~~t~~s are quite fop&~ in diverst Muslim circles, as evidmxd by the
sq port they me&u! from ~~ve~~~~ts and private arganizatisna fmm
wo:Id, ~~~~di~~ Sazx$ A~~1.b~ and Libya. Also, scme of !k wvks 0x1
bawd are rranslations lkcm Arabic.
9One source cjf ccmtmversy is the Sunni-Shia stism and the di~~~j witty each of Ehest:
f doubt r%sore important, is the ctbnie, pli?icaf and cultu&
1
e ~~~~~~. A ~~~~ SW f c ~9~t ~~~e~~~ i s Sk i t t t t b
so t he: ~~~~~t Zl aw z
,~Mr ~o~~. on t hi s hst poi nt , sm ~6~~~~t ~~~~~~.
he honest in iciness dealings.
(m?I, p 19)* kYQlves k
for a YilU EmmIre and
) mites: A mly Muslim entrepremur wbs can
at cheaper rates will arever
m&s. Some scholars would
ng it mandatory to specZy in
rice, ~~u~~~ly ruling out
or is also required, acm~ding
* to his employees. d
on s0cially waste; 31 or
360 T. Kuran, Behavioral norms in Islamic economics
individual must stop at this point.' Given that resources were created for the
benefit of mankind, the individual member of Islamic society is also obliged
to make sure that his wealth is not abused, destroyed, kept unutilized or
'squandered on idle pursuits'.18 Most authors are careful to point out,
however, that the Islamic economic system does not require the individual to
be an ascetic. It encourages him to enjoy the bounties of civilization -
provided he stays within certain limits.
The remaining consumption norms are all intended to attenuate gross
inequalities of income and wealth, which may emerge as a result of variations
in ability or opportunity. Private property is permissible and a modest
degree of inequality is viewed by the Islamic scholars as the inevitable
consequence of a healthy incentive system.
19
Yet, whatever the level of
inequality, some income redistribution is considered necessary to guarantee a
minimum standard of living to the less fortunate members of society,
including widows, orphans, the aged, the handicapped, and the unemployed.
Able-bodied beggars are not entitled to assistance.
2o
Organized redistribution takes place through zakat, an annual wealth tax,
and the inheritance tax, a complicated scheme designed to prevent the
'intergenerational snowballing of wealth,.21 But there is no consensus among
Islamic scholars as to the rates of these taxes or their scope. Regarding zakat,
some scholars advocate the exact system developed in the early days of
Islam, which involved rates varying between 2.5 percent and 20 percent on
existing forms of wealth, while others favor both modifying the traditional
rates and taxing new forms of wealth, including machinery and stocks.
22
This
lack of consensus notwithstanding, numerous scholars regard zakat as a
cure-all. For example, Azam (1978, p. 123) writes: 'Zakat transforms the
whole mentality and outlook of the people - and therefore, the social
system itself. People become welfare-minded by nature and temperament ....
The whole pattern of consumption, production and distribution IS
transmuted .... Zakat [fights] hoarding, waste and poverty in one go.'
Unorganized redistribution, more interesting from our standpoint, is
induced by a norm requiring the individual to make additional charitable
donations, presumably to people of his choice. One writer, S.M. Yusuf (1971,
18Chapra (1970, p. 151); see also Mannan (1970, pp. 87-97), Afzal-ur Rahman (1980b, ch. 5),
Muslehuddin (1974, ch. 9) and Abdul-Rauf (1979, p. 132). Some authors, for instance Mannan
(1970, pp. 82-83), distinguish between three types of consumption goods: 'necessaries', to which
everyone is entitled, 'comforts', which increase a person's efficiency but by a lower proportion
than they increase expenses, and 'luxuries', which reduce a person's efficiency.
19S
ee
Nazeer (1981, p. 20) and Chapra (1970, p. 16).
20See Nauer (1981, pp. 20-23), Chapra (1970, p. 155) and Yusuf (1971, p.59).
ZlNazeer (1981, p. 23); see also Abdul-Rauf (1979, pp. 137, 139) and Chapra (1970, pp. 153-
155).
llAIl of the Islamic economists referenced in this paper have something to say about zakat. A
particularly detailed account is given by Afzal-ur Rahman (1976, chs. 14-18). For an outline of
the controversy, see Siddiqi (1981, pp.22-26).
guirieiine: capacity for contribution to social
to
by the amount one is able to spare after
which. ir commonly enjoyed by men of ones
orgg $nq$i@ by the: ,foNgkq~ statement of
~CS~,BVHI st?qgger qtioa: A Muslim is not tcl
withGut letting, him sha iti nor should he,
h new toys unless he as presented his,
se norms will in practice be followed
~p~o~y~ %&at, for instan%. ensures that the individua.1 member sf
&@I& kgky w# :bc. -totally hoxxst, and make the charitable donatiom
rqq&$&by the &kunic doctrine? The answer of the Islamic writers hinges on
@+U$ormalioq. of unrefined horn0 ecrorramicus into how i&unicus. They
offer : tyo. distiact avenues for thig transformation. The farst involves
mo&&xtion of preferences. Islam, they claim, alters mans state of mind SQ
t@.~,per@ve~ h&s&not as an isolated individual but as one component
of the Jarpr community. This change curbs his personal wants while making
him gq@x@y &erested in the welfare of society.23 With his selfis5 desires
regulated by a spirit of brotherhood, man turns into a sccial being who
derives pleasqre from helping. others.
The second avenue involves internal restraints on mans actions.
Ram that religiorr, cannot always succeed in transforming mans
socially undesirable pteferences, the Islamic scholars &o stress the role of
Islam in preventing man from acting upon there preferences.24 The
regulation of mans actions - as opposed to his preferences - is achieved
by instiling in him a concern for the aftexlife. Islam, like most religions,
conveys the message that mans actions are b&ng judged and that he will be
rewarded after deaa for good deeds and putished for bad deeds. A belief in
the truth of @is rnwge motivates; man to choose to
society even when
th$ service .pre@udes satisQing4orne of his personal v
Me*?, @fGntcrest in altruistic behavior is also conveyed through the
teaching that dtsuism constitutes a social insurance me?:hanism: in a society
of shariqg, individu& everyorrt, is freed from the possibi ity of hel;4essness in
case of grave mnomic loss [Husaini (1980, pp. 131--134)J. As with any
the Eslamic one must, of c x~se, face up to the
overborne, ~c~or~i.~~ to the lo
age swiety cannot affect
I& will or will not
if the redivide
wasteful and therefore corn&ary to the ~s~ain~c norms. YE or similar reasons
om-2 Would expect the Islamic Dorm rp-,uirilag firms to charge a fair price to
be largely ignored iltr most instances, t en if all emrepreneurs knew precisely
what *f&r price meant.
The foregoing arqmenr sho& not be taken to mean that the ~s~arn~c
tlorms would be totally ineffective in zk large society. This, as I have
emphasized earlier, is trot an issue her:. Indeed, one would expect an
~n~vid~~ raised according to Islamic precepts to display some form of
Islamic a~tr~srn toward at least some members crf the community, probably
his &mily, friends and other groups with which he can identify. Atad as
(1982, p 37) has note in a more general context, a 13ocial
y, caused, say, 6:~ war or an earthquake, might so alter the
in~v~d~a~s perception of the social ~t~ity of altruism that he CRooses to
abide by most of the Islamic norms u&l the emergency is ~ver.~~ What my
argument does suggest is that the belief in Hslam must
secure cooperation on a coraEinuous basis am0
w-so real imeraclions with +ac
I
eraes on sociaI arad
This srnalg 5: is csverlarc~lcs the fact that as s6Pcie: y grows, s
13,lr.i
dj~fiSj~~ (If hbCW allOW individuals i0 haVC. diff~~t3lt day-to-d ny experien:;e~
and ~!ev::kq~ d~~~r~~~t conceptions of reahity.41 In a small, homogeneom?
society 5B~here there is little division of labor, it is possibI.;: to inculjcate
commor values in al! members because their experiences - and therefore
their perceptions of reality - are similar. In kf large %,sciety, k.owever, where
people WO& in many diRerent e~~~ir~r!rn~n~s, experimcing I nany differelat
joys and frustrations, i~di~idwa~s differ 21~ their jud&mer?s corccrning equity
and effrc:ienc:y. Thus, even if they all go through the same educltioi-ial system
smne individuals heconre more receptive than otl ners *o a given set of nrxms,
Another problem with the agenda for inculcating the Islamic not-ms is that
it ignores the possibility that a Muslim society comprisin~~ bu; on: sector. of
an econsmicaHy interdeper:dent world will be open to \?ut iide influences.
Mow in an economically ic terdependent uo::ld will indiv!dua Is br: kept free
of contamination by other modes of behavior, whet;ler in regard !O
consunl stion or business? In a small, homogeneous coi;lmunity. gzo-
graphically isolated from the rest of the world, it may be pcssihle to keep
non-Muslim influences a bay. But in lhis age of easy co_mm~.rnication, F3st
transportation and fierce economic t ompetifion among countries, where
success in business of:-en hinges on rapid adjustment tc changing
opportunities, bw can one expect all members cf socie,l> to cornpi?
voluntarily bith the multitudes o.! I:orms proposed by Islamic scholars?
Closing themselves off tls foreign ideas might, if nothing else, put them a+ a
disadvantage vis-&vis non-Muslim competitors in international markets.
It is reasonable, therefore, to expect that at least some cf the Mushms who
come in contact with, say, proFitable Western banking m~,:tho&. would
choose to adopt these methods at home, particularly if -the methods are
regarded as ethical abrsad. Surely, strict enforcement of the Fslarnic norms
would require net onl:yr education but ;alse scme sort of aaercion, a
possibility rliscolunted by th:: Islamic scholiars. If in the Isiamic order
individuals ue not barred fr;)m traveling to non-Muslim countries. frcjrn
reading foreign b.3oks and newspapers, from watching. foreign mo!.ies. and
perhaps mo:+ important of all. from i.eceiving ala educatiovl abrixd, it -n;+.~
nut be possible, t wept by coercion,
.o keq-i rIC:V ideas and new IT,CF?:ria,- Oi
behzlvior frr;m rilt :ring in. I% arg:_s Tten?t, iin$bil In __L._ L
nr~~f t j s/ zmi c v+*f tti i j gc; .
: . i : r: i t the ~~~~~F Sti rC7gth whi ch ii:;lam i rl i ti I !s I 42 i ts adhm_zrr. ts consTi P: i es a SLl f C
weapon ZgZj anst ccrrugti 8; tg ~xtg~*n~. l i I !i I Ue"$J Cg: s $l l OL~l i bC rXri ti : i ri !- cJUC:3Lit.ri?;,d
s&fys!Jsg &r:.;Jp~ !i the ;;,sl; ;if- ::;!21j)< .%jJf pp<;,+ !{I ii!< ]:I_.r, f-cu t:ty);l;:y~Ck
many Western va$oes and .In:.tita~iir3i;: i&i-z ;-
b&ibid .ji :c&>t 3 f*-rc:?h:?!:l ;:; :.JS cp7i
the mmf t-k%Ylean of Musi-xz socic.tics.
to the prevent tailors &qmdents? Unless he has an explic%
re he simply cannot determine whether his actions are in
arrcwd w&h t5-e norm.
The problmn is quite: coimnon: f*, m-i-323, fm instance, in firing an
~~~~~t~~~ erhpluyee, in ~x~~~~~~ti~~ n land to build a highway, ant1 in
WZ&.S~ ~~t~~ experimmts which Day ham humaIr sut~jects. As long
as ~z1: a&m is expcted ta be&it sme at the: expose uf others, a~ index of
SG aI w&m is meded to detemim the cum& cu~rse of act&m. But the
I53zfnjc scholars &me yet tu prop092 an appropriate index. This f&Inre is
m&z& fur as; we sh&! SW later? it upem tfp the pussib&ty that well-meaning
n# mbem uf mciety o4I be suspzzted af op~m&.
brother mme c f ambipity is that the norms do not provide clear
to the ~~d~v~d~~ in amations where the social benefits sf
wtions vary over time. f shall consida this SOMX uf ambiguity in
i.he ~ot~text of R di@~e~. nom the otie that pohibits the inditidt.taI I~VSII
~bwa~~~g the ve &or& of others. Situations Often arise waere a
a&on is ex to yieid ah mtcome thar is &&able in the short run
bk in the fo_rlg _rmo, M vke yiefsz As an ti~stration of the puiat,
probkm f&g two individmds, Ahmad ttnd Omar, who are
big for the same job. Stqqmse first that Ahmad cmes to believe bat
in better quaMkd for the jub and that thlmfure society would be
off 8 the job were give~t ts OIltar. fa this situation the Islamic nums
rqttire Ahmad to withdraw from the cumpetitiua. Sat scenarios are
tHia Gmpk. So sqqu~se now that Ahmad, whiFe remgnizing that
Otrtar ,ti btptte-& qt&Sed at pesent, nonetheless believes th& he w&d be
&k tu per~um &tter thm Mar after a few months of traGng on the job.
In th5s GS, shm&I he qtithdraw from the cuqetition bemtse Mar is
Ixtter q~%kd at present, or should te stay in beoawe he b4ieves that with
scme mining L could outperform &nary The Mmie scholm have nu~. laid
dmm aziy r&es for resulting this smi of dikmnm
The ambiguous nature of sume zmms, inchtding the eomumptiun nums
&at call for muderatian and sharing with the kss fortmate is explicitly
r~~p.iz& by a f&v of the ldamic writers. Chapra (370, p. 152) note:% lor
imtmce, that the kvef of pmsonal eq.md.it~e :mctiuned by Idam varies
mmding tu the g~rma;l wealth and standard of .!iGng of society.47 But the
ion that rmdemtio~ in CumtmqNim is a meatigbrss concept ipL
ta, does co< by he:ff, redve the dGemna of &e individllal Mustim
sqq IQ abide by &Jj nom, for
it: pXJ:lide3 little help h his struggle to
~~~~~~~~ the l.iE&rs 3f msri;&zat;on.
& &IX for tla~ shtig rer;timmt_ Consider, for example, the
l@&m lo r&F& ti3m ,@ving b.& eh&&eJf new toys whthout f&E
sme that ;tis rieCQi&ors c 4I i i i br eo have swne Rm. f n most c ssn~eex t .s,
r t t i :: ~~~~~~~~ *mtfd m&z the qtmtim of who qual%es as a neighbor. Hf
neighbor is to he interpreted literally as ti .e person who Yives next door, the
obligation can be fulfilled easnl;, since peoples neignbors a.re usually in the
same income caLgory as themselves - and in any case, as I have already
argued, lz eopl e tc.:nd to derive utility from helping p:ople with whom they
associate regulariy. If, on the other hand, it is to be imerpreted as fellow
members of thr: Islamie community, the obligation can constitute an
intolerable burdlnn. It can mean, for example, that a wealthy ,:esident of
Tabriz ~mnot hay his child a new toy unless he first makes sure that
children living isi the shantytowns of Cairo all have new toys too, This
example shows that in failing to provide a precise definitio!l of the term
neighbor: the Isli;lmic: scholars are evading an issue of fundamental practical
importance.
The productio!a norms against hoarding and speculation present two Sorts
of ambiguities. ihe first problem is definitional. It is unclear whether the
Islamic scholars draw any distinction between hoarding and the rcxtine
practice of carrying inventories in preparation for an upsurge in demand.
Hoarding, it is sitid, violates Islamic principles because it yields unearned
profits. But the same can be said about carrymg inventories: if thf narkc:
price off the good in question is rising over tL,le, then any inventory, hc wev :t
small, will rest&: in holding gains. Do the Islamic writers, therefore, favor a
prohibition against inventories? If so, they wish to place firms in the absurd
situation of hqll&tg to sell all their output in the period in which it is
produced.
The second source of ambiguity is that hoarding and specv.iation. even if
undertaken in the expectation of a windfall gain, may benefit society. in ;he
process of buying cheap today when Supplies are plentiful to sell dear in
tomorrows shortage, the speculator ensure:; in at least ~0111~ common
situations that supplies are less volatile over time and that tomorrows
market price is lower than it would have been in t,he absence of his activities.
So the speculator can in these situattio~ justifiably believe that he is
rend&kg a service to society. Should he themfore pass blip opportunities to
serve society (and himself) to SaMy tbe Islamic i:rrjunc+ion agains+
speculation, or should he violate thou< injunction in oTder > fulfill his
potentiai, as required by another Islamic norm y Its evident that by failing to
distinguish be&+veen sr&a.lly harmful an< beneficial speculation, Mamic writers
are implicitly requiring the individual to violate one norm or the othzr.
Many of these am.bi,&ties stem from the fact that the nor-Ins s-uggeSred
today by the firoponents of Islamic economics originated four?een ceatur!eS
ago - if not before:.
Thus, numerous p!rohibitionS c0ntinti.e to enjoy wide
supper:, &cause in the eyes of many of its proponents, the IslaU?n.ic Systen1 is
Static. $Vl ile I&mic: writers may pay lilp Serviz to Ehe inewitsbility of SOti 1
change and th,e desirability of in.stitutio~~,&l evolution, they Gill tend to trr!at
the norms as unchangeable evea thougil they themselves cannot agree ~1
which nornrS ~o~~~t~~~~~ the kernel of the slcamic sconorra~. bH
48For instance. Naecr il9st) s?r:r;s.es tile need h r flrtjht!.!\ i>;r; :!:c+. iiiY;.Plj- !. il!l i.:: i
..-
..F --,~-,,:sitic,p
I. . . . . :..I ;. .;i, .i;; l:,!lr_..
l[p;.!i<! ,s.
Ik.B.O. 0
Consider the case of business insurance, which emerged in response to
en&xqxeneurs very real need fobr r~Aticing the uncertainties in,tlerent in
busmess activity. Inserrance enables investors too small to assemble a mixed
portfcGo of investments to engage in risky proje&s. In effkt, an insurance
company ycrsls together the risky investments of small firms, and makes a
profit by offsetting bad outcomes with gocd ones. Whether the pri.4: of
inwrance is too high in modern economies is, of course, a matter over which
ink&gent people can disagree. What is clear, though, is Ltlnt society as a
whole benefits from the practice, because it stimulates investments that would
not otherwise take place.
This example demonstrates, once again, the danger in evaluating economic
behavior by intent rather than expected comequence. The Isimic scholars are
against insurance on the grounds that insurance sellers are bn the business to
make a living by the roll of &c:e. Insurance companies do indeed rely on
chance to prevent the contingencies for which insurance was purchased.
What the Islamic writers do not consider is that in the process of seeB$ig these
unearned profits, the insurance Alera provide a valuable service: they make
the business environmetrt less risky for investors.
The argument in this section, that the Islamic norms are ambiguous, may
seem paradoxical in. light of my earlier statement that norms are sometimes
used successfully to solve coordination problems by focus&q, peoples choices
on particular states of the world. The explanation is that the Islamic norms
are not designed for these sorts of situations. Almost without exception, they
are designed to overcome perceived free rider problems. But .:LS I have tried
to show, these norms do not provide the Muslim genuinel!. interested in
obeying the dictates of his religion with a course of action ,t!*bat necessarily
contributes toward the de&d solution.
5. Coacldng remarks
The problems just discusse:d show that tPI,e behavioral norms advocated by
contemporary Islamic scholars are not well suited to the t3sks for which they
are intended. In todays bvorld these norms by themselves cartnot be ,expected
to serve as the spearhead of a drive for economic growth with equity. This
nega:ive conclusion stems from two comsideretions. First, in a society
composed of millions of persons and not just himndreds or thcujards, it is
diff%ult to elicit generaltied ahruism, to o\ercome the free rider problem and
to achieve a common perception of reality. These factors combine to make it
unlikely that the norms will enjoy wide:spread adherence. Secondly. the
norms are ~d~~~~~d with ~~~~~~~~it~? and somb of rhem would tAimiHPatc: vit4
institutions that cop-+ fl~ore or less succes~.fully. with problems that 2riw ir:
markets evefpb~klere. so :w!rI if i-d,
1 ;yJefi-)&ir; <>f r<,$+t; are <i;trr tt\ .:,Flij,~ !rJ
:he lilpiRlS, the r:csanrsmg~ may perfwm inadequately in terms of growrh and
equity.
ifh vain to fpnd a discussion of i he criteria i\ccordlng to which the: states role
wiU evcik4z over tirn~2.~ 1
Se~~~z~dlgr, the Islamic schoiar:; have barely outlineci hsw the market would
work in a modern Islamic socic.:ty --- let al.one analyzed the markets role in
economic development. This omissicin is ::erious because many vital elements
of healthy market;:; are expressly prohibited by v~~,~Hx.w Islamic norms.
.,ludgiing by contemporary writings, the Islamic market is in serious need
of mar?:& institutions. The one institution that ha:s received detailed
consideration is the Islamic bnunk, which has been heralrled as a medicine to
c ur e innumerable diseases [Al-Saud (1982, p. E 3413. But voluminous as it is,
tk literature on this institution tends to be imprecise and iLconsistent.52
One is also tempted to defend the 1sla;mic writings on [he grounds that
lqws, the aitemative to norms, can be ambigc.ous as well. Indeed, many of
the iaws of modern nations frequently lead to ambiguit!es, as evidenced by
the arge numbers of court cases that lie unresolved for years. Nonetheless,
these laws are far more precise than th.e norms advocated by the Islamic
scholars. And more importantly, they tend to be revised over time, partly in
reqonse to the discovery of ambiguities The Islamic norms, in contrast, are
by and large n:grrded as unchangea.ble and the ambiguities inherent in them
receive little at tention.
Ii is fair to say, therefore, that at this stage the Islamic economic doctrine
is too simplistic and lacking in too many essential respects to be considered
a serious alternative to neoclassical (or even Marxist) economic theory. The
only real contribution of the Islamic literature to our understanding cf
economic development it,. the icsights it provides into the role pl,ayed by
behavioral norms iu ensuring s80ciat cooperation. But the:;e insights are not
easy to extract, for they are buried among a host of grandiose claims
regarding the scope of the Mamic literature. So the naive reader can easily
be misled into believing that Islamic scholarship offers a workable economic
theory.
There was a time when Jslam served as an agent of progress. For man!
centuries beginning with Muhammad, Islam gave major support to the
advancement of science and economic development_ while the Arabs, Turks,
Persians acd other Mus1im.s stood at the vanguard of progressive chang:.
B;ut contrary to what contemporary fslamic scholars wouid have us kliev?,
this support did gbot manifest itself as vigorous adhererw t c sevent h c ent ur y
Hsk ~mi c mm~. Rather, it was based on j;udicioua!; deveiopment of ne5- law:;
and rules in r gsponse to evolving socio-economic conditions.
NasrB Zkyyd Wossein, 197(1 Rc~9~tions on Islam and modem thought., The Islamic Qua;terly
23, 119-131.
Nazeer, Mian M., 1981, The Islamic economic spt~m. A few higiJights (Rakistan Institute of
IItwkpMl Ekonomics$ Isbwlbad).
Ncxth, Douglass C., 19gf, Strwturr snd change in economic history (Narton, hew York).
~Iscm, Maneur, $965, III@ &$,I of c&?&ve action iHarvard University Press, Cambridge, MA).
Rahm&tn, &&UP, 1976, IEconomic doctrines of Mam, Vol. 3 (Islamic: Publications, Lahore).
R&MsI~~, A&&U& 198Oa, Ecorjomic doctrines of fslam, Vol. 1, 2nd cdl. (Islr,mic Publications,
Lahwiz).
Rm Afbd-urv 19@%, Economic doctrines of Islam, Vol. 2, 2nd eir. (I& tic Pub!& ions,
ulhore).
R&m&n, Fazlur, 1982, fsIam and modernity: Transformation of an inte*lectu.al tracidon
fUniv&t_y of Chicago Pres& Chicago, IL).
Rod~mson, Maxime, 1980, Muhaaunad (Pantheon Books, New York).
&usndera, &J., 1965, A history ot medieval Islam (Routledge and Kegaa Paul, London).
S&&I&, Joeeppz 1959, The o&ins of Muhuxxnadan jurisprudence, 3rd ed. (Oxford University
Pn!ss, LoKidolt~.
Scott, &&n Foley, fY71, Interaalizauox~ of norms: A sociotogical theory of moral commitment
~P~~~tice-Hal.l, En$ewood C&f&. NJ).
Shaban, M& 1971, &4a.mic bistor> AD. 6@0-750 (A.H. 1321, (Cambridge University Press,
CZbtidge).
Sidbiqi, Mtimad New&h, i97
Lahbxe).
1 The econfxnic tnterprise in isiam (isiamic Pubiicdhons,
Siddiqh M-&ammad Nejatullab, 1981, Mu&m econotic tllinking: A survey of contemporary
literature {Tbe Ishunic Foundation, L&ester, UK).
Simon, Herbert k, 1978, On how to decide what t.o do, Be-1 Journal of Economic!; 9. 494-507.
illhnarm-Margalit, Edna, 1977, Tbe emergence of WG~I S (Ox ord University Press, Oxford).
Van Gruneban~ G.E., 1970, classical hann: A history, ZX - 1258 (men and Unwin, London).
Wan, W. Montgomery, 1956, Muhammad at Me&a (0x1 xd University Press, &ford).
&x& S.M, 1971, Economic justice in Ishun (Sh. Muham nad Ash&, Lahore).